Author Archives: thedoctor

What Determines Best in Class in Energy Management?

Energy prices are going up. Energy consumables (oil, natural gas, and coal) are going down. Electric vehicles are still not an option for major forms of supply chain transportation (plane, train, and tractor trailer). And they need to be charged from a grid that is probably not set up to handle large quantities of renewable energy, as production is not constant (as winds come and go, tides ebb, and clouds mess with direct sunlight) and grids require constant power levels (or they overload and blow — and even though the sky lights up a beautiful shade of blue when it happens at night, it’s a pretty sight you really don’t want to see).

As a result, energy conservation, which starts with energy management, is becoming more important by the day — especially when supply management needs to keep costs down (which are starting to skyrocket in manufacturing plants and data centers), be socially and environmentally responsible, and deal with (impending) carbon legislation. For some organizations, that’s easier said than done and they need a roadmap from an external expert. The goal of this post is not to provide that, but to define what best-in-class in energy management is and key capabilities required to get there.

According to a recent Aberdeen study on Energy Intelligence, best-in-in class is defined by:

  • High Operating Equipment Effectiveness (91%+)
  • Aggressive, continual, reduction in energy consumption
  • Aggressive, continual, improvement in operating margins

And, in particular, best-in-class organizations exceed their energy consumption and operating margin goals by 20% or more.

To this I’d add:

  • aggressive, continual, movement to renewable sources
  • continual shift to low-energy technologies and process

Let’s face it. High OEEE is good, but if the equipment being used is an energy hog, 90% efficiency is still bad if there is an alternative piece of equipment that only uses half the electricity at 88% efficiency. And energy reduction is good, but moving to renewable sources is better. No coal is better than less coal.

So what are they key capabilities you require to become best-in-class in energy management?

According to the Aberdeen report,

  • accessible real-time and historical energy data,
  • standardized energy management processes across the enterprise, and
  • metrics to benchmark the performance of the energy program across different plants.

This is a good start, but your energy management expert in supply management also needs

  • a solid data analysis tool to analyze the cost and usage data,
  • a strategic-sourcing decision optimization solution that can handle energy models in all their complexity to allow the analyst to optimize the buy in a manner that balances cost with sustainability and risk management goals and provides the most value to the organization, and
  • a supply chain visibility solution that allows an analyst to monitor the energy usage across different plants in near-real time to find usage patterns that are problematic or appropriate for optimization.

If an analyst had all these capabilities, there’s a good chance the organization would be on its way to becoming a best-in-class energy manager. Unless you think these capabilities are not sufficient and they also need a few SCRAPS. Thoughts?

… Then I Take Purchasing

Inspired by the great Leonard Cohen‘s First We Take Manhattan:

… Then I Take Purchasing

They sentenced me to thirty years of boredom
For trying to change the system from within
I’m coming now, I’m coming to reward them
First I take Corp’rate Finance, then I take Purchasing

I’m guided by a signal in the heavens
I’m guided by this birthmark on my skin
I’m guided by the beauty of my weapon
First I take Corp’rate Finance, then I take Purchasing

I do not like to live beside you, baby
I fear your body and your spirit and your clothes
But you see that line there moving through the station?
I told you, I told you, told you, I was one of those

Ah you loved me as a loser, but now you’re worried that I just might win
You know the way to stop me, but you don’t have the discipline
How many nights I prayed for this, to let my work begin
First I take Corp’rate Finance, then I take Purchasing

I don’t like your fashion business mister
And I don’t like the tainted money you take in
I don’t like what happened to my sister
First I take Corp’rate Finance, then I take Purchasing

I do not like to live beside you, baby …

And I thank you for those items that you sent me
The monkey and the plywood violin
I practiced every night, now I’m ready
First I take Corp’rate Finance, then I take Purchasing

I am guided

Ah remember me, I used to live for content
Remember me, I brought your traffic in
Well it’s Veteran’s Day and everybody’s wounded
First I take Corp’rate Finance, then I take Purchasing

De-Mystifying Economics

A few months ago, Bob Rudzki pointed out a great article on economics that appeared over on the Talking Points Memo (TPM) site this summer where the “CBO Schools Tea Party Freshman on Basic Economics”.

The article, which reprints a letter from Douglas W. Elmendorf, CBO director, starts off by noting that changes in government spending can affect the economy in two different ways: in the short term, by changing demand for goods and services and over the long run, by changing the potential supply of goods and services. Then it goes on to note that economic activity can deviate for substantial periods from its potential level in response to changes in aggregate demand and that increasing government spending can increase aggregate demand and thereby narrow the gap between the economy’s actual and potential levels of output. But most types of government spending have this short-run effect on demand and changes in government purchases and transfers create demand-side effects that are usually only temporary because they raise or lower output relative to what it would be otherwise only for a while because, over time, stabilizing forces in the economy tend to move output back toward its potential.

In other words, government intervention has only a temporary effect and can not be depended upon to increase demand for your products in the long term. In order to increase demand, you need to understand that demand — which is the desire to own, the ability to pay, and the willingness to pay — is dependent upon price point. It could be the case that while only 100 people want your product at $100, 100,000 could want it at $80.

Thus, if the organizational goal is to increase demand, the price point will have to be effectively lowered — and if the organization is going to get through tough times, it’s going to be dependent upon supply management to either reduce costs, increase quality, or find a way to offer more (value-add) features without increasing the price point. That’s why supply management is one of the most critical functions in today’s enterprise and why they need better tools and technologies to achieve their goals. And a few SCRAPS to help them keep the focus to get there.

Logistics Managers Need Scraps Too!

A recent white-paper by Management Dynamics Inc. on “Current Trends and the Potential for Automation in Transportation Management” noted that better informed decision-making on freight route planning, carrier selection, shipping scheduling and costing, load planning, guidelines compliance and auditing, invoicing, and reporting results in greater logistics operational efficiencies yields significant cost savings. No surprises here. We’ve known that for a while.

The research further shows that many shippers have yet to automate these critical freight management and transportation procedures. No surprises here either. That’s why we have leaders and laggards. Leaders have automated many of these procedures, or are at least working on automating these procedures, and laggards are, sometimes, still using phone and fax, like they did BC*.

The research also found that one fourth of survey participants claims their company spends more than 15% of their overall revenues on freight transportation shipping efforts and the percent paid out on international freight services is also considerable. This is to be expected considering how many companies decided to outsource half a world a way and the recent spike in oil prices (as well as piracy off the Somali coast). Similarly, only one fourth of respondents automates mission critical applications for calculating rates and selecting routes and carriers. The leaders do it, the laggards still do three-bids-and-a-buy. Finally those [shippers] that do [use a contract management solution] are lowering their transportation spend through improved carrier selection, fewer errors and risks, and greater compliance with approved shippers.

So what’s the problem? Especially when solutions have existed for most of the functions for almost a decade? Simply put, the logistics managers are overwhelmed. In order to manage a shipment, as alluded to in the first paragraph, a logistics manager needs to be aware of the contract (in the Contract Management System, CMS), the spirit of the bid (included in the bid package contained in the Request for Proposal, RFX), the rationale behind the selection of new lanes (which stems from the optimal model, stored in the Strategic Sourcing Decision Optimization solution, SSDO); get the current rates (from the Transportation Management System, TMS), calculate the number of LTL or FTL loads needed (based on product weight and volume, contained in the Product Life-cycle Management solution, PLM), gather the necessary data for the manifests, import, and export documentation (contained in the Global Trade Management solution, GTM); generate the shipping order and goods (in a customized e-Procurement solution, eProc), receive status updates (through a Logistics Management solution, LM), accept the invoice and make a payment (through a Procure-to-Pay solution, P2P), and insure the goods are recorded as current inventory (through the Inventory Management System or Warehouse Management System). Let’s recap, they need to be fluent with CMS, RFX, SSDO, TMS, PLM, GTM, eProc, LM, and P2P solutions, at a minimum, plus any systems that their 3PL and freight providers use to provide data, any enterprise resource planning (ERP) or manufacturing resource planning (MRP) solutions that contain data they need or capture data their internal customers want, and any visibility and risk management solutions used by the Supply Management group as a whole. For an average logistics manager with an Associate’s Degree, at best, who started his career where it was just a matter of getting a truck to the loading bay on time, this is overwhelming. Instead of making his life easier, modern supply management technology has overwhelmed him.

He needs a solution that not only tells him what he needs to focus on today, but that identifies where the data, and only the data, he needs is in these various systems — with wizards or workflows that take him through what he needs to do. And until he gets it, he’s going to defend that fax machine with his dying breath.

So if you really want your TMS, WMS, LMS, or 3PL system to gain widespread adoption, remember to throw the old-school logistics manager a few SCRAPS. If you do, you might find that the state of the industry changes seemingly overnight.

Rampant M&A Does Not Indicate the Demise of Best-of-Breed

On the contrary, it symbolizes the emergence.

But let’s back up. A few months ago, Supply Chain Digest, with a piece on the Consumer Goods Supply Chain Landscape asked if Best of Breed [is] a Dying Breed. Noting an increasingly accelerated accelerated spate of mergers and acquisitions among leading supply chain best-of-breed solution providers, they called into question the long-term efficacy of some of these solutions, as well as the viability of these software companies themselves on the premise that there would soon be no best-of-breed vendors left for a consumer goods manufacturer to choose from.

If there were only N vendors, and the rate of M&A kept increasing, then, yes, we would reach an end-state where there were no best-of-breed vendors left. But this reasoning ignores one very important reality — most startups chase the biggest opportunity, which is typically where they perceive the most action to be. If the most action is in the M&A of best-of-breed, then new companies will see the most value in being best-of-breed and, as a result, we will soon see the emergence of a whole new slate of best-of-breed vendors. And while it’s true some won’t be sufficiently capitalized while others won’t hit upon the right technology, leading to their untimely demise, the reality is that a fair number will make it and that some of these, by the law of large numbers, will be even stronger than the remaining best-of-breed players today.

So, while the choices may be limited for the next year or two, the reality is that the number of options available to your average CPG manufacturer will soon explode. As for the other concerns, they’re not too worrisome either. Let’s take ’em one-by-one:

  • vendor future uncertainty
    Manugistics and i2 were considered market leaders and potential acquirers, not acquirees but were still acquired. The reality is that even a billion dollar enterprise can be swallowed up by a larger company, or, as a few spectacular acquisitions have evidenced, go from market leader to an almost forgotten business unit (like Netscape and Lucent) so this is not a concern restricted to best-of-breed.
  • ongoing support
    As most best-of-breed players have moved to (multi-tenant) SaaS or update subscriptions, which keep a customer on the current version, support is not the issue it once was. Plus, most will agree to code escrow, so, even if the vendor went away, the product could still be supported. Plus, once a best-of-breed vendor reaches a certain size, a number of consultancies acquire a competency and while resources might be expensive, support resources are not unattainable.
  • risks
    No solution is without risk. And a small best-of-breed vendor can be more financially stable than a large aggregator leveraged to the max and highly dependent on aggressive sales targets to meet payroll.

So don’t lament the recent M&A binge of best-of-breed players. It only means that new ones will arise and that more innovation is, eventually, on the way.